It was Otto von Bismarck who introduced statutory pension insurance towards the end of the 19th century. Up until that point, retirement provision was a private matter. Wealthy citizens opted for life annuities – they would hand over their house or land to another person or lend money to third parties, for example, and receive a monthly pension in return. Today, the state pension is available in Austria. However, it is rarely enough for a comfortable life in old age. That is precisely why it is important to make provisions as early as possible so that the standard of living built up over the years can be maintained in retirement.
The investment pension
In Austria, there are actually two options available – the investment pension and the life annuity. If you opt for the investment pension, you decide for yourself how to invest your assets. Depending on your risk appetite, there are payout plans from bond, mixed, or equity funds, or from banks. In advance, a financial advisor calculates a withdrawal plan intended to show the investor how much capital might be available at the end of the term. Beforehand, it is determined whether the capital should be consumed within a predefined period or preserved. An advantage is that the investor can decide for themselves how much they want to invest – i.e., 25 euros/month, 50 euros/month, or 150 euros/month. The monthly contributions can, of course, be increased at any time. Sometimes, the investor can also withdraw part of the existing capital before retirement or the entire capital only upon retirement. It becomes problematic if the investor starts drawing on it quite early: in the event of poor performance and an above-average lifespan, there is indeed a risk that the assets will be used up before death – however, the assets can also grow if the markets move in the right direction. If the investor invests (e.g., via CMC Markets) in funds with a high equity component, and stock prices skyrocket, the investor can look forward to a quite substantial fortune.
Private pension insurance
More convenient and also safer – but only slightly flexible – is so-called private pension insurance. The invested capital is converted here into a life annuity, which is subsequently paid for life. The amount is determined directly by the insurer and is composed of the basic pension and potential profit participation. The advantage of private pension insurance? Even at an advanced age, there is still a monthly pension payment because the so-called longevity risk is borne by the insurance company. However, there is also a disadvantage that should not be underestimated – private pension insurance relies on the consumption of capital, meaning that the early death of the insured person results in the survivors being left empty-handed.
